Japan - September 2019S P OT L I G H T
Savills Research

Japan Logistics©ESR LTD

Japan Logistics

Logistics demand remains robust• Although vacancy edged
up slightly during the year
in Greater Tokyo, due to acontinuing inﬂux of supply, themarket remains tight with soundpre-leasing activity.
• Greater Osaka vacancy
continued to tighten as themarket enjoys a reprieve afterrecord supply came online in2017.
• Asking rents have been trending
downward in Greater Tokyo,
though this partially reﬂects thefact that bay-side facilities withhigher rents are largely occupied
and not listed.

• Developers of geographicallydisadvantageous properties
tend to ratchet up automation
features to ease potential
tenants’ concerns over their low
accessibility to labour pools.

MARKET TRENDS
In Greater Tokyo, vacancy declined by 1.5
percentage points (ppts) year-on-year (YoY) to
3.4%, though saw a slight uptick of 0.1ppts overthe end of 2018 (Graph 1). Even so, demandremains much stronger than initially expected.
Despite a large inﬂux of supply entering themarket, pre-leasing for new facilities appears
to be proceeding smoothly, supporting thelong-term prospects of the Greater Tokyo

Graph 1: Supply, Take-up And Vacancy In Greater Tokyo, 2010 to 1H/2019
Completions
5Y Avg Completions (2014-2018)

Net Aabsorption
Vacancy Rate (RHS)

2,500

12.5%

2,000

10.0%

1,500

7.5%

1,000

5.0%

500

2.5%

00.0%
2010

2011

2012

2013

2014

2015

2016

2017

2018 1H/2019

Note: Annual periods from February to January. Vacancy rates are as of the year end foreach annual period, while the rate presented for 1H/2019 is as of July.
Source Ichigo Real Estate Service, Savills Research and ConsultancyGraph 2: Greater Tokyo Rent Vs Vacancy, Q1/2016 to Q2/2019

Average Rent (LHS)

Average Vacancy (RHS)

4,500

6.0%

4,250

5.0%

4,000

4.0%

3,750

3.0%

3,500

VACANCY RATE

JPY / TSUBO / MONTH• Japan’s e-commerce market
continues to grow, which isbuttressing logistics demand.
Home-delivery fees continue
to rise, though new delivery
modes, such as Amazon Flex,
could serve to make the shipping
industry more efficient and costeffective.

VACANCY RATE• In light of tightening vacancy
and less incoming supply, asking
rents have been rising in GreaterOsaka.

market are unlikely to materialise immediately,
this might be the precursor to a shift in theindustrial sector.

INTRODUCTION
Despite concerns over heightened supply
in 2019, robust demand kept vacancy rates
tight in Greater Tokyo, while Greater Osakacontinued to show signs of improvement as
excess supply caused by a supply surge in 2017has been steadily absorbed. E-commerce, as
well as third party logistics companies, areexpected to drive demand over the long term.
That being said, increasing labour costs andreduced delivery volumes due to higher fees areweighing on the business performance of major
logistics companies such as Yamato Holdings.
While the impacts on the logistics property

THOUSAND SQ M

Summary

2.0%
Q1

Q2

Q3

2016

Q4

Q1

Q2

Q3

2017

Q4

Q1

Q2

Q3

2018

Q4

Q1

Q22019Note: Annual periods from February to January.
Source Ichigo Real Estate Service, Savills Research and Consultancy

savills.co.jp/research2Japan Logistics

market. Although average asking rents in theoverall market have seen a steady drop since
the highs posted in Q1/2018 (Graph 2), rents
for facilities at the upper end of the market,
particularly those in prime areas, haveincreased.
Indeed, rent and vacancy can varysigniﬁcantly by submarket. With highdemand and limited new supply, the Tokyo
Bay submarket tends to see higher rents
and lower vacancy rates. Limited spacefor development in the area has restrictedsupply, while convenient access to supply
lines, as well as workforce in central Tokyo,
is driving demand. On the other hand, due
to its distance from residential centres andthe resulting limitations in access to labourpools, the Ken-O Expressway submarket
tends to see somewhat weaker performance,
which has been accentuated by an inﬂux
of supply. That said, new facilities in thearea tend to be marketed with extensive
automation features to ease labour burdens
and are thereby expected to alleviate some

Even amidst historically highsupply levels, the logistics market
remains strong as tenant demandfor conveniently located, highspeciﬁcation facilities is on the rise.
Greater Osaka in particular has been
improving performance since themarket was disrupted by oversupply
in 2017. Property investors havegenerally adopted a more bullish
attitude towards the sector, andinvestment volumes appear set to risein the second half of 2019.

Graph 3: Supply, Take-up And Vacancy In Greater Osaka, 2010 to 1H/2019
Net Aabsorption
Vacancy Rate (RHS)
16.0%

1,500

12.0%

1,000

8.0%

500

4.0%

0

VACANCY RATE

THOUSAND SQ M

Completions
5Y Avg Completions (2014-2018)
2,000

0.0%
2010

2011

2012

2013

2014

2015

2016

2017

2018 1H/2019

Note: Annual periods from February to January. Vacancy rates are as of the year
end for each annual period, while the rate presented for 1H/2019 is as of July.
Source Ichigo Real Estate Service, Savills Research and Consultancy

Graph 4: Greater Osaka Rent Vs Vacancy, Q1/2016 to Q2/2019
Average Vacancy (RHS)

3,700

15.0%

3,600

12.5%

3,500
10.0%
3,400
7.5%
3,300
5.0%
3,200

VACANCY RATE

JPY / TSUBO / MONTH

Average Rent (LHS)

2.5%

3,100
3,0000.0%
Q1

Q2

Q3

2016

Q4

Q1

Q2

concerns harboured by potential tenants.
In Greater Osaka, vacancy tightened
7.4ppts YoY to land at 4.3%, a signiﬁcantdecline from its peak of 13% in Q3/2017.
Average asking rents rose 6.5% YoY to land at
JPY3,620 per tsubo. The inland submarket,
which contains the areas north, east, andsoutheast of Osaka City, typically sees
stronger performance and has tended toabsorb new supply much more eﬀectively.
The submarket has convenient access to theKinki Motorway, Hanwa Motorway, Nishimeihan Motorway and Hanshin Highway, as
well as to residential centres.
The Osaka Bay submarket, which was hit
the hardest by high supply levels in 2017,continues to show signs of improvement.
While the area has good access to seaports
and airports, it is less suited for commuter
travel and, therefore, worker retention ismore challenging than for inland facilities.
Reduced supply going forward should help
support the submarket’s performance.

Q3

2017

Q4

Q1

Q2

Q3

2018

Q4

Q1

Q2

2019

Note: Annual periods from February to January.
Source Ichigo Real Estate Service, Savills Research and Consultancy

3

INCOMING SUPPLYGreater Tokyo continues to see high levelsof supply that is mainly concentrated inChiba and Saitama. Pre-leasing, however, hasproceeded smoothly and thus newly-built
facilities had only a minor negative impact onvacancy. In Kanagawa, for example, Logiport
Kawasaki Bay, a multi-tenant facility witha GFA of 300,000 sq m, began its operation
with full occupancy in June 2019. Daiwa
Corporation and Maruwn Corporation
are reportedly two of the seven tenants
occupying the facility.
Based on the data available from theMinistry of Land, Infrastructure, Transportand Tourism (MLIT), warehouses inGreater Tokyo that are registered under theJapan Logistics

MAP 1: Existing Warehouse* And Logistics Facility Supply After 2018

New Supply
Warehouse* Warehouses registered as “Class 1 Warehouses” under the Warehouse Business Act
Source MLIT, Press Releases, Ichigo Real Estate Service, Savills Research and Consultancy

Graph 5: Share Of Investment Volumes By Asset Class, 2007 to 1H/2019
Logistics

OfficeResidential

RetailHospitality

Other

100%
90%
80%
70%
60%
50%
40%
30%
20%10%0%
2007 2008 2009 2010

2011

2012

2013

2014

2015

2016

2017

2018 1H/2019

Source RCA, Savills Research and Consultancy

savills.co.jp/research

4Warehouse Business Act are spread widely
across the region with high concentrations
along the bay area and highways. Newlogistics facilities in the pipeline areconcentrated in those established areas,
with only a handful of projects venturing
away from the Ken-O Expressway ring.
In Greater Osaka, supply has moderated
signiﬁcantly in 2019, especially compared to2017 when a glut of supply caused vacancy
to rise sharply. Around 350,000 sq m isestimated to enter the market by the end of
the year, less than one third of the nearly 1.3
million sq m of supply seen in 2017. Althoughover half of this supply has already opened,including the Mapletree Kobe LogisticsCentre which has a GFA of 100,000 sq m,
the impact on the market has been moderateto date.
The extension of the Shin-Meishin
Expressway was completed in March 2018
and added a new route between Osaka
Prefecture’s Takatsuki City and Kobe.
According to West Nippon Expressway
Company, traﬃc jams that aﬀected any
span of over 5 km occurred about 70% lesscompared to the period prior to the openingof the new thoroughfare.

Japan Logistics

INVESTMENT TRENDS
According to Real Capital Analytics (RCA),
logistics investment volumes for the ﬁrst halfof 2019 stood around 131 billion yen1, a 41%
decrease over 1H/2018. While on the surface
this may indicate a lull in investor demand,a large portion of early 2018’s recorded
volumes were due to the privatisation of
GLP and the transfer of its Japan portfolio.
More importantly, though recorded volumes
for 1H/2019 may be comparatively weak,
investment has already picked up during thesecond half of the year.
For instance, it was reported in Julythat Blackstone Group would acquire a
portfolio of logistics facilities in Japan,
including Amazon’s fulﬁlment centre in
Kanagawa, from Mapletree for a total value
exceeding 100 billion yen. Other major
foreign investment funds are rumoured to betargeting the sector and are likely to close on
deals during the second half of the year. On
the domestic side, the Government Pension
Investment Fund’s FY2018 annual report
showed that the institution had gradually
increased its domestic real estate investment
to 125 billion yen since its launch in December
2017, with the largest share of 31% accounted
for by logistics properties.
Indeed, Japan’s logistics market continues
to attract both domestic and foreign investor
interest as prospects for the sector arefavourable and yields remain attractive– potentially leaving room for furthercompression. Ichigo Real Estate Service’s
bi-annual survey of industrial market
players has similarly revealed conﬁdence inthe sector, with a near 20-point increase in
expectations for rental growth, as well as a13-point increase in expectations for capital
appreciation, over the next six months.

Graph 6: Comparison Of Tokyo Grade A Office And Logistics Expected Cap Rates,April 2009 to April 2019
Grade A Office (Marunouchi/Otemachi)

Multi-tenant Logistics (Tokyo Bay Area)

7.0%

6.0%
1.5%

5.0%

1.0%

4.0%

3.0%

Source JREI, Savills Research and Consultancy

Graph 7: Six-month-ahead Expectations For Rent And Capital Appreciation,2008 to 2H/2019
Rents

Capital Values

100
78.0
69.2

80

DIFFUSION INDEX

60

53.3

40

29.7 29.9

20 13.8

8.4

0
-20
-40
-60

80.9
66.3

-14.8

13.0 -20.5

34.8
25.6 28.6

27.3

28.7

19.2

14.1

7.7
-4.8

-6.3

25.9

38.0
25.3
37.0
21.0

22.6 23.1
5.0
-13.1

18.7

-3.7

-15.9

-25.9

-37.7
-42.0 -63.96.938.9

74.3 75.0
66.8
53.3
50.5 48.8-40.3-80-86.2-100
1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H2008 20092010201120122013201420152016

2017

2018

1 In principle, RCA investment volumes exclude
related-party transactions, such as those between a J-REIT
and its sponsor.

2019

Source Ichigo Real Estate Service, Savills Research and Consultancy

Table 1: Selected Investments, Announced February 2019 to July 2019

PROPERTY NAME

TRANSACTION VALUE(JPY MIL)APPRAISAL DIRECTCAP RATE

BUYER

SELLER

Prologis Park Kyotanabe

35,800

4.4%

Nippon Prologis REIT

Prologis

Landport Ome I

13,6404.5%

Nomura Master Fund

Nomura Real Estate Development

Prologis Park
Higashimatsuyama

12,600

4.5%

Nippon Prologis REIT

Prologis

D Project Itabashi Shingashi

12,300

4.2%

Daiwa House REIT

Daiwa House Industry

Logiport Kashiwa Shonan

9,300

4.4%

LaSalle Logiport REIT

Undisclosed

Source Company Disclosures, Savills Research and Consultancy

5Japan Logistics

GRAPH 8: BtoC EC Market Size And EC Penetration Rate, 2010 to 2018
BtoC EC MarketEC Rate7.0%

20.0
6.2%

18.0

5.8%

4.8%

14.0

5.0%

4.4%

12.0

3.9%

10.0

3.2%

4.0%

3.4%

2.8%

3.0%

8.0
6.0

EC RATEJPY TRILLION

6.0%

5.4%

16.0

2.0%

4.0
1.0%
2.0
0.0

0.0%
2010

2011

2012

2013

2014

2015

2016

2017

2018

Source The Ministry of Economy, Trade, and Industry, Savills Research and Consultancy

GRAPH 9: BtoC EC Market Size By Category, 2016 to 2018

Clothes
Food And BeverageElectronics
General Goods, Furniture
2016
Books, Music/visual Contents

2017

Cosmetics, Drugs

2018

OtherAutomobiles, Parts

E-COMMERCE
Japan’s BtoC e-commerce market has been
expanding year after year and reached JPY18
trillion in 2018, though still accounting for6.2% of total retail sales, according to theMinistry of Economy, Trade, and Industry.
The county’s e-commerce penetration
is expected to grow further as it remains
relatively low compared to global peers suchas the U.S., U.K., and China. Sales ﬁguresby category also exhibit upside potential as
items such as clothes, as well as food andbeverage, have low e-commerce rates while
recording large online sales.
While the long-term growth of Japan’s
e-commerce market is favourable for thelogistics market, rapid increases in homedelivery in recent years are constraining
distribution networks, resulting inincreasingly high transportation costs. Asa result, major shipping companies such as
Yamato Holdings and Sagawa Express haveincreased delivery fees, with an especially
rapid rise from FY2017. If this trend
continues, increased transportation costs
may reduce the proﬁtability of e-commerce
retailers and could aﬀect their capacity to
pay higher rents.
On the other hand, new initiatives inthe delivery sector could serve to mitigate
costs. In April, Amazon rolled out Amazon
Flex in Japan. With this Uber-like network,
individual contractors pick up packages
from an Amazon delivery station and deliver
them to customers. Home deliveries byautomated vehicles are also being tested
by multiple companies, which could
signiﬁcantly reduce ongoing costs.

Stationery
0500

1,000
JPY BILLION

1,500

2,000

Source The Ministry of Economy, Trade, and Industry, Savills Research and Consultancy

GRAPH 10: EC Penetration Rate By Category, 2018Clothes
Food And BeverageElectronics
General Goods, Furniture
EC%Non EC%Books, Music/visual Contents
Cosmetics, Drugs
OtherAutomobiles, Parts
Stationery
0%

20%

40%

60%

80%

100%

Source The Ministry of Economy, Trade, and Industry, Savills Research and Consultancy

savills.co.jp/research

6OUTLOOKSound demand from e-commerce and 3PL
companies continues to support the longterm prospects of Japan’s logistics market.
Greater Tokyo saw a loosening of vacancy,
though the market remains tight, reinforcedby smooth pre-leasing. Automation featuresappear especially important to attract
tenants to properties located further awayfrom labour pools. Greater Osaka continues
to display resilience as vacancy falls andrents rise. That being said, the weakening
business performance of logistics ﬁ rms
might eventually weigh on the now rapid
growth of the industrial real estate market,
though the potential gravity and timing of
the impact is uncertain.
E-commerce in Japan is expected toincrease its share and continue to boost
logistics demand. As customers become
increasingly demanding and purchase daily
goods online, e-commerce companies are
striving to provide fast and timely deliveries,
which should continue to increase the needfor last-one-mile logistics centres. WhileJapan Logistics

GRAPH 11: Average Home Delivery Fees, FY2009 to FY2019

YamatoSagawa750

JPY PER DELIVERY

700650600
550500450
400major home-delivery service providers areincreasing delivery cost, new technologies
as well as transportation networks could
improve cost eﬃciency in the long run.
Developers and investors alike continue
to demonstrate strong interest in the sector.
Bids for industrial development land inGreater Tokyo are in some cases seeing prices
as high as three times the publicly disclosedvalue (Chika Koji) of neighbouring land.
Strong investor interest has been illustrated
by the large portfolio transaction involving
Amazon’s fulﬁlment centre. Although
the overall investment outlook is marredby multiple global uncertainties, soundfundamentals and the relatively high yields oflogistics properties are shoring up sentimentin the sector.

Source Corporate disclosures, Savills Research and Consultancy

For more information about this report, please contact us

Savills Japan

Savills Research

Christian Mancini
CEO, Asia Paciﬁc(Ex. Greater China)+81 3 6777 5150
cmancini@savills.co.jp

Tetsuya KanekoDirector, Head of Research& Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Simon Smith
Senior Director
Asia Paciﬁc+852 2842 4573
ssmith@savills.com.hk

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